SAN FRANCISCO (MarketWatch) – Corn and other grain futures soared on Friday after a report from the U.S. Department of Agriculture indicated the balance between supply and demand for corn on tighter in 14 years.
The Agriculture Department on Friday forecast a 2010-11 corn harvest 3.8% lower than government expectations just a month ago, as a hot summer in the Midwest preceded by flooding in June made havoc.
The agriculture ministry said it now expects corn production to reach 12.66 billion bushels, up from the 13.16 billion forecast in September. The September forecast itself had been revised downward from August.
Maize for delivery in December CZ10,
the most active contract, jumped 30 cents, or 6%, to $ 5.28 a bushel on the Chicago Board of Trade, the highest since late September 2008.
The corn surplus by the end of next summer, the end of the 2010-11 corn season, is expected to fall below 1 billion bushels, the lowest since the 1995-96 harvest. The ratio of stocks to demand for corn would be 6.7%.
“This means a very, very small margin of error for the 2010-11 crop,” said Darin Newsom, senior commodity analyst at DTN Telvent in Omaha.
After the June floods, the Corn Belt suffered from a hot summer and, more importantly, warmer-than-usual nights that hampered corn’s ability to pollinate normally, he said.
The rebound in corn, widely used as a feed and biofuel, also pushed up prices for soybeans and wheat and pushed up shares of fertilizer and farm equipment companies. The shares of livestock producers have fallen.
Deere & Co. DE,
stocks rose 4.8%. Seed producer Monsanto Co. MON,
gains 4.2% and fertilizer manufacturer CF Industries CF,
rose 11.4%, helping to make the materials sector the top performing sector in the S&P 500 index SPX,
10 industrial groups.
Shares of food producers and manufacturers, which could suffer from rising production costs, fell.
Tyson Foods Inc. TSN,
stocks lost 7.7%. Poultry producer Pilgrim’s Pride Corp. PPC,
fell 5.2%. SIG General Mills,
stocks fell 0.5%.
The Agriculture Ministry cut its forecast for the soybean crop by 2 percent to 3.40 billion bushels from 3.48 billion in August. The agency also lowered its end-of-season estimates for stocks of the three grains.
Soybeans for delivery November SX10,
the most active contract, advanced 70 cents, or 6.6%, to $ 11.35 a bushel on the Chicago Board of Trade. Wheat for delivery December WZ10
added 60 cents, or 9.1%, to $ 7.19 a bushel.
The Agriculture Ministry report follows a separate report last Friday that showed corn stocks higher than analysts’ expectations. Corn prices fell to $ 4.66 a bushel on the news. They had traded above $ 5 a bushel in the second half of September.
The tighter supply chart painted on Friday underscores “the need for prices to move to $ 6 (a bushel) to ration demand,” Morgan Stanley analysts said in a report to clients.
Soybeans and wheat are likely to follow corn, they said. With wheat, however, all eyes remain on the situation in Russia, analysts added. A drought earlier this year led Russia to enact an export ban until 2011.
Corn is expected to “continue to recover over the next month” following the bullish impact of the latest USDA report, said Luke Chandler, London-based analyst at Rabobank’s commodities research. Demand will likely have to be curbed, either by reducing exports or increasing prices, he added.
Shares of other fertilizer makers also rose. Intrepid Potash Inc. IPI,
gained 8.1%; Mosaic Co. MOS,
advanced by 7%; and Agrium inc. AGU
(AGU) is up 7.5%.